The city’s financial consultant told Grand Marais City Council March 12 that although there was some interest shown by prospective financial backers contacted about a proposed $10 million district heating project, the undertaking isn’t feasible without state bonding bill support.
Nick Anhut of Ehlers Inc. presented the findings of a report requested by the city council in January. He said the Rosevillebased firm began its research by identifying and contacting nine municipal bond underwriters, commercial banks and private investment groups to gauge their interest in purchasing the city’s expected bond issue. The firms were also asked to provide insights on the likely market response to financing of a district biomass heating project of the size needed in Grand Marais, based on a project summary overview prepared by Mark Spurr of FVB Energy.
Anhut said that five of the nine firms indicated an interest in financing the project, but noted several underwriting details would need to be worked out; the other four firms indicated that the project was either too small or too specialized for them to underwrite and market to investors. In short, the consultant said, the interested firms said they believed the city would find “investor appetite” for the proposal, but others backed off and said they would not respond to an RFP (request for proposal) at this time, primarily because there are not enough end users.
“Financing providers were intrigued by the proposed distribution network, and compelled by the projected utility cost savings… but were also somewhat concerned by the relatively small number of system customers,” Anhut wrote in his summary. “Among the interested parties, questions of system size and concentration risk were not deal killers, but they will need to be addressed in contracts and financial projections.”
Anhut said it was clear that state bonding bill support is vital to the project’s feasibility and said financing providers will execute revenue or lease-based bond issues only when they know all other funding sources are in place – or at least ready at the same time as completion of their transactions.
“We did not find any ‘silver bullet’ that would lead us to believe that the project is viable with significantly less grant support. For example, although the city could generate much more project funding by issuing general obligation bonds with debt service coverage at or even below 100 percent, we do not envision the city seriously considering this option,” Anhut stated.
“We really think that without grant funding, the project is not sustainable at this point. The grant is integral to this project…or getting on the governor’s list,” he told councilors.
Councilor Tim Kennedy, who has been working on the heating plant proposal with the Cook County Local Energy Project (CCLEP), agreed that it was imperative for the city to secure some type of grant or a place on the governor’s priority list for the project to succeed. But he noted that local legislators David Dill and Tom Bakk have said they wouldn’t support the plan until the details were in place and called it a “chicken or egg” situation.
“We’re in a difficult spot,” said Kennedy. “They’re (legislators) just being cautious and want to be sure it’s moving forward before backing it.”
George Wilkes of CCLEP was also in attendance, and he pointed out that the city has not endorsed the project yet, either, and reiterated his past statements that the project will not be pursued if it poses a financial risk to the taxpayers. There’s just not enough information available yet (such as number of system users – a key piece of the puzzle), Wilkes said, to know if it will be feasible.
In a related matter, council supported by a 4-1 vote a request made by Wilkes to help fund a parttime CCLEP coordinator at a cost of $2,000, the same amount the city contributed last year.
Mayor Larry Carlson cast the lone dissenting vote, saying he had problems with the continued funding of the organization, especially since its main project – the district heating facility – was “dead.” Carlson said he believed that some of the projects CCLEP has completed – such as installation of solar panels at the Rec Park bath houses and golf – could have been done just as well by other groups or organizations such as the city’s park board.
Wilkes took exception with the mayor’s comments and said he doesn’t consider the biomass plant to be CCLEP’s main project. Instead, he said, the group’s ongoing education efforts to promote energy efficiency and conservation, and its home energy audits, are the top priorities.
“They do things well beyond the solar initiatives, and they’re good for the community,” said Kennedy of CCLEP. “We’re seeing a good return on our investment.”
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